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U.S. Treasury to Combat Real Estate Money Laundering with Groundbreaking Rule

In a major step against financial crime, the U.S. Treasury is set to introduce a long-awaited rule targeting real estate money laundering by revealing anonymous purchases of luxury homes.

U.S. Treasury Department
U.S. Treasury Department

Closing the Loophole in Luxury Home Purchases

The U.S. Treasury Department is on the brink of proposing a rule that would bring an end to anonymous luxury-home purchases. This move aims to close a loophole that allegedly enables corrupt oligarchs, terrorists, and criminals to conceal illegally acquired wealth.

New Requirements for Real Estate Professionals

The anticipated rule will require real estate professionals like title insurers to disclose the beneficial owners of companies purchasing real estate in cash. The identities would be reported to the Treasury's Financial Crimes Enforcement Network (FinCEN), replacing the existing fragmented reporting system.

Timeline and Advocacy for the Rule

Although slated for proposal this month, the timeline for the rule might slip. Anti-corruption advocates and lawmakers have been pushing for its introduction, pointing to the urgent need to curb money laundering in the real estate sector.

Decades of Hidden Wealth in Real Estate

Treasury Secretary Janet Yellen highlighted that criminals have hidden as much as $2.3 billion in U.S. real estate between 2015 and 2020. Officials and advocacy groups emphasize the importance of the new rule to eliminate money laundering.

Concerns and Delays in Implementation

Critics argue that FinCEN has moved too slowly on this rule, announced in 2021. A related rule on unmasking shell company owners and debates in Congress have slowed down FinCEN's work, sparking concerns from industry stakeholders.

Industry Reaction to the Proposed Rule

The American Land Title Association welcomes the new rule but suggests a delay until the completion of the shell company rule. The proposal will also be open to public and industry feedback.

The Current State of Real Estate Regulation

Currently, banks must understand the source of customer funds and report suspicious transactions, but no such nationwide rules exist for the real estate industry. FinCEN's geographic targeting orders (GTOs) have limited reach, but the new rule is expected to expand them.

Challenges with Existing Measures

Despite implementing GTOs in 2016, the current orders are easily bypassed. Experts and transparency advocates push for a nationwide rule, highlighting cases where anonymous shell companies have been used for illicit purchases.

The Role of GTO Reports in Law Enforcement

GTO reports offer valuable data and are used to generate leads by law enforcement. However, concerns have been raised about FinCEN's ability to oversee the program due to chronic underfunding.

The Need for More Enforcement Resources

For the new rule to be effective, experts assert that FinCEN will need additional enforcement resources. More personnel and technological capabilities are essential for the proper processing of information related to real estate transactions.